Obamacare: 5 Things Congress Must Fix to Save Small Business

Last Updated Jan 11, 2011 8:30 PM EST

House Republicans should be able to push through a vote to repeal healthcare reform next week, but the move will likely be a symbolic one -- the Democrat-controlled Senate will make sure that efforts to dump the legislation are dead in the water.

But that doesn't mean potential changes aren't afoot. With that mind, here are five pieces of the bill that Congress should amend or strip out before they hurt small business.

1. 1099 Reporting Requirement
The rule: It requires businesses to issue a tax form for every single transaction or accumulation of services totaling more than $600.00 in a single year.

The problem: The 1099 requirement will create heaps of paperwork that could potentially cripple resource-strapped small businesses. Plus, it will encourage companies to try to reduce paperwork and save money by consolidating purchases at big-box stores like Walmart and Costco, where they can buy their toilet paper along with their toner, says Molly Brogan, VP of public affairs for the National Small Business Association (NSBA). "Specialized retailers are going to get totally kicked out of the market," Brogan says. "This is such a terrible, terrible piece of the bill that our first, second, third and fourth goal is repeal."

2. Health Insurance Tax
The rule: Starting in 2014, the health insurance industry must pay a new excise tax totaling $8 billion. It will rise to $14.3 billion by 2018 and be indexed for inflation in later years.

The problem: Each insurance company is expected to pony up tax money based on its percentage of market share -- a cost they could very well pass directly on to small businesses and their employees. Smaller companies already pay about 18 percent more for premiums than larger businesses because of high administrative costs and lack of bargaining power, though the White House has said that the new reforms will help drive those costs down. Still, NFIB analysts' projections estimate the additional cost to families could be as high as $500 per year, according to Amanda Austin, director of federal public policy for the NFIB.

3. Employer Mandate
The rule: It requires firms with more than 50 full-time employees (or full-time equivalents) to provide insurance, or face financial penalties based on a formula.

The problem: For small companies, the addition of employee No. 50 could mean the difference between paying no penalties, and owing the government thousands of dollars. The NFIB argues that the mandate gives small businesses a powerful incentive to downsize, replace full-time employees with part-timers, or outsource.

4. Medicare Payroll Tax
The rule: Beginning in 2013, the Medicare payroll tax on wages and self-employment income increases from 1.45 percent to 2.35 percent for individuals who make more than $200,000, or $250,000 for a joint return.

The problem: The government won't necessarily use the funds for Medicare, a stipulation the NFIB says "establishes a dangerous precedent to use this tax on small businesses to pay for other programs."

5. Health Care Tax Credit
The rule: Small businesses can get a tax credit for up to 35 percent of their premium costs in 2010. The credit increases to 50 percent in 2014.

The problem: While a tax credit for small businesses is generally a good thing, the new benefit is too narrow: It only applies to businesses with fewer than 25 full time employees (more if there is a combination of full and part-timers) who get paid less than $50,000 a piece. "It's very targeted and a lot of small businesses just aren't eligible for it," Brogan says. And while a limited tax credit may sound better than no credit at all, the restrictions provide an "incentive to stay small and pay low," adds Austin - not exactly what a country fighting for economic recovery needs.

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  • Elise Craig

    Elise Craig has written for BusinessWeek, MarketWatch and washingtonpost.com. She is an alumna of the UC Berkeley Graduate School of Journalism and Georgetown University, and a huge fan of Hoya basketball.